Coca-Cola Amatil
chief executive
Terry Davis
has called for a national debate over aggressive supermarket practices, including selling popular products below cost as “loss leaders", but cautioned against a mandatory code of conduct for the food industry.

Mr Davis, who has pledged to help the Australian Competition and Consumer Commission if the regulator’s investigation into misuse of market power and unconscionable conduct by the supermarket chains heads to court, is also opposed to the appointment of an industry ombudsman.

Instead, he has urged the government to do more to protect Australian manufacturers and called for a debate over practices such as selling popular products below cost as “loss leaders" to entice shoppers into stores.

But he said the crisis in the food manufacturing sector was not solely caused by the two big supermarket chains, Coles and
Woolworths
, which account for between 70 and 80 per cent of food and grocery sales.

“There is certainly room for debate [about] customers with such market power – and it’s indisputable that Coles and Woolworths have market power," Mr Davis told The Australian Financial Review.

“They have responsibility to use that market power wisely and for the good of their shareholders but also the good of the communities they operate in, just as we have a responsibility to be a good corporate citizen in the communities we operate in," he said.

Imported packaged food squeezing sales

“In our own business, we’ve seen tremendous damage done to our Shepparton fruit growing community through the rise of imported private label product."

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As much as 90 per cent of packaged fruit and vegetables is now imported from countries such as Thailand, Vietnam and South Africa, squeezing the sales and margins of processors such as CCA’s SPC Ardmona.

“But this is not just about whether one or two players have market power – the fact is that we as suppliers have to find ways to do business whether there are two, three, four or five [retailers]," Mr Davis said.

He called on the government to level the playing field for food and beverage manufacturers competing with cheap imports by encouraging investment through incentives such as accelerated depreciation and by restructuring the Fair Work Act to remove costs and improve flexibility.

“You can take a big stick to the retailers and say it’s all your fault – I don’t believe it is all their fault – or find ways to make it an easier place to manufacture in," he said. “That can be done in many ways by providing incentives for Australian manufacturers to not move offshore and not close down manufacturing operations."

ACCC chairman Rod Sims is expected to use his powers under Section 155 of the Competition and Consumer Act to force major food companies to hand over documents relating to their dealings with the retailers as part of investigations into allegations of misuse of market power and unconscionable conduct.

Woolies takes CCA brands ‘off promotion’

One of his first ports of call may be Coca-Cola Amatil, which lost millions of dollars in sales in 2011 when its market-leading brands were taken off promotion between May and October in a dispute over trading terms with Woolworths, its largest customer. Mr Davis declined to comment on this dispute.

Woolworths took Coca-Cola Amatil’s key brands “off promotion", favouring instead its smaller rival Schweppes, after CCA refused to agree to new trading terms. Analysts believe CCA’s volumes fell by about 5 million cases over this period, contributing to a 4.9 per cent slump in Australian volumes that year.

In his speech at the Senate estimates committee meeting last week, Mr Sims gave conditional backing to a legally enforceable code of conduct governing relations between the major supermarket chains and their suppliers.

However, Mr Davis does not favour a mandatory code of conduct or the appointment of an industry ombudsman.

“I’ve never seen regulatory situations work like that . . . overall I’m in favour of less regulation than more regulation."

The ACCC review will take a few more months and legal action may take years. In the interim, the retailers are working to mend their relationships with suppliers and avoid the appointment of an ombudsman or financial penalties.

Coles and Woolworths have been working on a voluntary industry code of conduct with the Australian Food and Grocery Council and the National Farmers Federation. Separately, the retailers are also working to establish a retailer and supplier round table comprising supermarkets, food manufacturers and farmers.

Voluntary codes of conduct

The aim is to shift the debate from commercial disputes to common ground issues such as productivity and innovation. The group has been working on this plan for almost 12 months, before Mr Sims started the ACCC’s investigation. “It’s still in the drafting stage," Coles spokesman Rob Hadler said. “But we have gone a long way despite the political and media pressure that has arisen this year.

“There’s goodwill and determination by all parties to resolve this as quickly as possible and come with a voluntary approach to resolve the tensions."

There are already two codes of conduct in the food sector – a voluntary produce and grocery industry code and a mandatory horticulture code. These are widely considered to be ineffectual and many industry players have walked away from both. However, the retailers believe that proposals to replace them with an ombudsman are short-sighted.

“Rather than have a top-down compliance approach that would lead to adversarial relationships and lawyers at 10 paces, it would be better for industry to do something and come up with a fast, low-cost confidential disputes resolution process that everyone thought would be more effective than a huge bureaucracy that would only cost more money," Mr Hadler said.

Mr Davis gave tentative approval to such a plan. “We have to find ways of growing their businesses profitably but not at the expense of us losing money," he said.